ABN Amro to Clients: We Want to Know Your Transactions

February 27, 2015byRob Bates

With banks still skittish about lending to the industry, ABN Amro’s diamond and jewelry division, generally considered the industry’s largest lender, has launched a “borrowing base verification program,” an ambitious initiative that could have a huge effect on industry credit.

According to the division’s global head Erik Jens, the program is based on the principle of “know your transaction.” Since banks finance a diamond company’s credit, they underwrite any credit extended by that company to its customers.

Now, his division is going to take a more active role in examining clients’ receivables and will regularly contact clients’ customers to verify outstanding invoices and ensure they will be paid. In other words, ABN Amro will know its clients’ transactions—to a more exacting and in-depth standard than before. While the bank has done this on a case-by-case basis in the past, it will now become more regularized and a standard part of the lending relationship.

This is meant to crack down on several problems. The first—what Jens considers a serious abuse—is when companies simply pass diamonds to affiliated companies and use those transactions to build up bank credit.

“We only want to finance genuine transactions, which really add value to the value chain,” he says. “On rare occassions we find those counterparts are empty boxes and not real companies. Or there have been instances when companies get into trouble and have cash-flow problems they start deviating the money and they start deviating the goods. You open up the company and there is nothing left.”

He adds these instances are rare exceptions—and so far, an overwhelming majority of invoices have been found to be valid. When they are not, the bank may pull back credit or, in the worse cases, contact authorities if there is evidence of fraud.

“These few exceptions create a negative perception on the overall industry,” he says. “There is always fraud in every business, but this is a way to minimize it.”

It will also target the more common problem of slow paying, as ABN will send its clients’ customers reminders for outstanding invoices.

“If they are not paying, we want to know why,” he says, “What happened to the goods? What happened to the money?”

Of course, slow paying—what the industry calls schlepping—has been part of the culture of the diamond industry since time immemorial. But Jens doesn’t understand why.

“If you don’t pay your electricity bill, you get one reminder and then the lights go off,” he says. “Why should we treat the diamond business different?”

Jens says that the most clients reacted positively to this aspect: “It’s a push for their counterparts to pay.”

The reaction to the rest has been mixed though mostly positive, he adds, maintaining it’s all about creating a more professional industry and increasing its transparency and, by implication, its bankability.

“We want to send a strong signal to the market that we are open for business, but we want clients we are happy with,” he says. “These procedures are standard in other industries. The diamond business has always been an exception.”

“Since I came on, I have always been hearing that the diamond business is different, and that we can’t do these things. I don’t believe this. My objective is to support change in the industry. I want this to become a normal industry.”